'Be Cognizant Of Aftershocks,' Says Analyst On Last Monday's Market Meltdown — Equity Market Caught In A 'Very Difficult' Position

Last Monday’s drastic drop in the equity market was most likely part of a longer-term upward trend, but investors should still be cautious of possible near-term dips as the market digests volatility in the currency markets, an analyst says.

A week ago, the Dow Jones Industrial Average lost over 1,000 points while the S&P 500 fell 3% and the Nasdaq Composite dove 3% after Tokyo’s Nikkei 225 slid 12.4%.

These indexes have nearly or completely erased their losses since then, but investors may want to hold off on buying because near-term volatility may persist as the broader markets absorb sharp movements in the currency markets over the next two months, Roth MKM analyst J.C. O’Hara said.

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“The equity market is caught in a very difficult position. Longer term trends are still favorable, but short term indicators are not oversold enough that would make us think a tradeable low is in place,” he wrote in a note.

“Our best guess is that managers should remain defensive as the market was already leaning in that direction before the volatility struck stocks. … We have to be cognizant of aftershocks.”

O’Hara said the S&P 500 needs to reach the range of 5,400 to 5,460 points for stocks to get on surer footing. The S&P 500, which is tracked by the SPDR S&P 500 ETF Trust SPY, closed at 5,356 points after losing eight points on Monday.

“We realize volatility has entered the equity market and the fixed income and currency markets are partially responsible for the recent swings,” O’Hara said.

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